Good afternoon, everyone and welcome to PLBY Group's Second Quarter 2023 Question-and-Answer Session. Hosting today's call are Ben Kohn, Chief Executive Officer, and Mark Crossman, Chief Financial Officer and Chief Operating Officer. While we wait for the queue to fill, we remind everyone that the information discussed today is qualified in its entirety by the Form 8-K that has been filed today by PLBY Group, Inc., which may be accessed on the SEC's website and PLBY Group's website. Today's call is also being webcast, and a replay will be posted on PLBY Group's Investor Relations website. Please note that statements made during this call, including financial projections or other statements that are not historical in nature, may constitute forward-looking statements. Such statements are made on the basis of PLBY Group's views and assumptions regarding future events and business performance at the time they're made, and we do not undertake any obligation to update these statements. Forward-looking statements are subject to risks, which could cause PLBY Group's actual results to differ from its historical results and forecasts, including those risks set forth in PLBY Group's filings with the SEC, and you should refer to and carefully consider those for more information. This cautionary statement applies to all forward-looking statements made during this call. Do not place undue reliance on any forward-looking statements. During this call, PLBY Group may refer to non-GAAP financial measures. Such non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings release PLBY Group filed with its Form 8-K today. Ben, do you have any comments before we take the first question?

Thank you, operator, and good afternoon, everyone. We have changed our earnings call format so starting this quarter, we no longer hold prepared remarks. Instead, we will go right into the Q&A dialogue. We see other companies doing this, and we feel it's a better use of time, and it also promotes a more open or transparent dialogue instead of taking half a conference call to reiterate what should be in an earnings release. Also in our release, we will leave with a business update from me, and we anticipate sticking with this format going forward. With that, we'll now begin our Q&A session.

Thank you. Our first question comes from the line of Andrew Uerkwitz with Jeffries. Please proceed with your question.

Hey, thanks for taking my question, and I appreciate the new format. Just two questions. The first one, I think on the last earnings call you mentioned reviewing the strategic value of Honey Birdette. Can you just give an update on that? It seems like a great asset, but it is facing some macro headwinds according to the press release. I'm just curious where you stand on that particular asset?

Thanks, Andrew. I'll take that, and Mark, please chip in. We have limited resources internally, and we have been spending a lot of time focused on selling levers. That business has now been moved to our discontinued operations in the financial statement. We have multiple offers for that business. We are under exclusivity with a party. At the same time, we are working on putting materials together for Honey Birdette for our financial advisor and based on market conditions, specifically the M&A market, and when we conclude the selling levers process, we will then evaluate the timing to start the Honey Birdette process.

Got it. That's helpful. Thank you. And then switching over to the creator platform, I guess two half questions here. The first is you made several changes in the quarter that seem to have a very positive outcome. Can you just remind us what your roadmap is on adding features and other updates to the platform? And then secondarily, AI has been all the rage. How are you guys thinking about leveraging AI and maybe discovery and other areas? Thank you.

Sure. Look, we are constantly updating the platform, and we're using data to help us do that. The biggest change that we undertook during the quarter was actually changing our onboarding process. There were certain things that the consumer or the user does not see that we had to put in place and expand. For example, our moderation tools, making sure that we create a safe platform, not only for the company but for our creators, and also that complies with our credit card companies. Historically, we were onboarding creators in a very manual way. People would apply, but the process to actually onboard a creator was all manual. We looked at actually some of the dating sites, such as Bumble, and completely reworked the backend of the system to put in the right ID checks with state databases, coupled with the right AI tools for moderation. We reworked the entire process to onboard creators, and the data for that is extremely encouraging. If you look at what happened, we increased our creator count at the end of July to almost 4,000. Earning creators in July about 1,400 of those earned for the first time in July. The bulk of that came in the second half of the month, and the trends have continued in August. This allows us to focus on platform marketing versus individual creator recruitment. When you look at the concentration of where our revenue is coming from and how many creators, what's most encouraging is that we have decreased the percentage of weekly GMB that our top 10 creators contribute to the platform by over 20%. They decreased by more than half, really, more than half, but it's 20 percentage points. That tells me our revenue mix is becoming much more diverse and speaks to the health of the platform. Other changes we made include greatly enhancing and rebuilding our live product. There's more on the way regarding that in the future, including a one-on-one live feature. We also did something that others don't have, either an entry fee or a pay-per-minute, and we also changed when credit cards are entered into the system. We just recently did that a few weeks ago, and we've seen a 3x increase in the number of credit cards that consumers are entering versus before. What's coming up, lastly, we started to test what I would call legacy content in the system. We took 12 former Playmates of the company and created profiles distinct from other active creator profiles in the system. This is all part of a much larger play that we'll get into as we go into the fall. How do we integrate the various pieces of this company into one hero product, which is our creator platform? How does that integrate into the Playboy lifestyle? Those are the highlights of the changes. There's much more coming.

Got it. Thank you. That's very helpful.

Our next question comes from the line of Jason Tilchen with Canaccord Genuity. Please proceed with your question.

Great. Good afternoon. Thanks for taking the question. Going back to the creator platform for a second, can you please remind us, maybe update us on the level of investment in that platform that's being made on a quarterly basis and how you view a target level of GMV to get that creator platform to break even or so? And then I have a follow-up after that. Thanks.

Yeah. So the level of investment we're seeing in the creator platform right now is mainly coming out of OpEx. So it's roughly in line with where we were last quarter. What was the second part of your question?

Sort of if you have a target level of GMV that you're looking towards as sort of a breakeven point before that starts to be a positive contributor towards overall profitability?

Yeah. I think if we continue to run at the rate we're at, we'll be able to get there by year-end, but we'd have to see a little growth. I think that number is probably around $50 million to $55 million of GMV.

Yeah. So $50 million to $55 million of GMV, the business turns cash flow positive for the year and right now, we continue to see the growth that we've outlined in the previous calls. If you annualized our weekly GMV right now, we would be in excess of $35 million. We took a pause during the second quarter onboarding creators as we were reworking the process. It just wasn't a good use of human capital. The acceleration we saw at the end of July and that continued through August, especially when we look at the number of applications, is very encouraging for us moving forward.

That's really helpful. And then just on the $8.5 million of cost savings that you called out in the press release, can you just talk about where those are coming from and sort of the specific level that were already taken out in Q2 versus sort of the timeline for when the rest of that we should expect to be coming out of the business?

Yeah. So a lot of the, this is Mark, a lot of the costs that we're seeing coming out over the course of this, the $8.5 million that we announced is, I would say, a mix between headcount and basic operating expenses for systems that we're using throughout the company. The original headcount or the original cost that we had talked about in the first quarter, a lot of that was coming out of our IT and our supply chain costs. As I said, that'll play out over the course of the next two to three quarters.

And specifically with the $8.5 million, although we've achieved some of that in the month of July, in the second quarter, there's very little, if any, of that in the second quarter. So we, as we talked about previously, are rebuilding the business line item by line item? A big part of that was actually repricing all of our insurance of the company. We've seen multiple millions of dollars of savings just through insurance, and we're in a much better market today than we were two years ago for insurance.

Great. Really helpful. Thanks a lot.

Our next question comes from Alex Fuhrman with Craig-Hallum. Please go ahead with your question.

Hey, guys. Thanks very much for taking my question. Wondering if you can talk about the outsourcing of the Playboy e-commerce business? Can you give us a sense of how profitable that business has been historically? Are you going to have any ongoing expenses related to that business to offset the 15% licensing fee you're going to receive? And then can you just talk about maybe what your licensee there might be able to do in terms of growing the brand or expanding to new types of items?

Yeah, this is Mark. We had pretty heavy losses from that business in the past when I came in, and part of it was we wanted to turn those losses to profits. We didn't have the infrastructure in place to make the product ourselves. So we had very low margins on it, sub 50%. So we licensed it out, and right now the agreement, we don't have any costs that we have to bear. So that 15% hits pretty much straight to the bottom line. From our perspective, it'll be profitable day one, and I think the minimum guarantees right now started about $5 million a year. So that's about 750 to the bottom line to us just in year one, and the overall goal is in the course of the next three years to grow that to be a $20 million business, if not more.

Yeah, Alex, it's Ben. I'll just chime in. In the second quarter, we had seven figures of losses still related to Playboy.com, the e-commerce store. If you look at our adjusted EBITDA, when we talk about actually being positive without those losses, EBITDA would have been positive in the second quarter if it weren't for those losses and some one-time costs related to the China joint venture. The partner was actually in the office yesterday and is very encouraged by their early work and some of the collaborations they're working on for Playboy merchandise going forward.

Okay, thank you both. That's very helpful.

Our next question comes from the line of Jim Duffy with Stifel. Please proceed with your question.

Well, thank you. Hi, Ben. Hi, Mark. Hey, guys, typically you follow the 10-Q coincidental with earnings. Should we expect that tonight?

Yes, you should. It should be forthcoming.

Okay, great. And then the next question is, Okay, great. And then considering your comments, is it fair to say you expect monetization of both Lovers and the art collection before year-end?

Hey, Jim, it's Ben. Look, I can't predict buyers in M&A and sale processes. What I can say is we see multiple offers on Lovers. We are under exclusivity with a party, and that coupled with where we are now, our finance and accounting team decided that it warranted moving that to discontinued operations. When you look at our revenue that we reported, you have to add both discontinued operations and continuing operations together for an apples-to-apples comparison for the quarter. As far as the art collection, we are in multiple conversations down the road with various parties on selling it either in one or multiple auctions. Some of those will happen before the end of the year. We're also looking into selling some items from our archives that are interesting, as well as a lot of remnants with furniture from the mansion.

Helpful, thanks. And then with respect to Honey Birdette, I'm curious. Is the brand growing outside of Australia? And then within Australia, it seems like you're reducing the promotional dependence. How long do you think it could be before that Australia business can rebase?

Yes, the Australia business is declining, and it is outpacing the decline we're seeing in the US and Europe. But I make no bones about it—the brand is declining in both the US and Europe. What we saw are kind of two things. The consumer right now is really shifting towards services and essentials, and we're not necessarily an essential product. However, we see when we have a sale, this stuff flies off the shelves. We actually saw extremely high positive comp sales in all three regions during a seven-day sale over the Memorial Day weekend. May comped up tremendously, and of course, you have the typical hangover in June from the big sales. Right now we're seeing conversion and traffic, but conversion moves up and down with whether we're on sale or not. We were on sale last year for about 118 days during the year, and this year, we're coming up on September, where we expect to be on sale nearly the entire month. We'll run a Labor Day sale and be in, then we will be out. I think the goal is to push towards profitability rather than just revenue growth.

Our next question comes from the line of J.P. Wollam with Roth MKM. Please go ahead with your question.

Hi, guys. I appreciate you taking my question. If we could maybe start just in terms of the licensing business and the joint venture. You made a call-out regarding some of the geopolitical situation. I'm curious if there have been any changes to what the JV looks like and/or its potential achievements relative to when you first got into it?

Thanks, JP. It's Ben Kohn. No, we just had a call with our partners last night. The business plan that we set out with them, crafted last year, was to create and take back some of the business and create these flagship stores on T-Mall, Douyin, and other platforms, so that we could control the selling process, while not controlling inventory or manufacturing. This something that the platforms wanted, and the business models in China have changed. The remote specific issues in China, where Chris Riley, our GC, and myself were just a few weeks ago, really stem from macroeconomic issues. The economy is in poor shape in China, outside of the luxury consumer segment. It's not good on the ground there, and moving money out of China is more complex than it used to be. Traditionally, banks used to facilitate wires; that's not the case now, or they are even rejecting money transfer requests. The overall opportunity and the business plan has not changed; it's the timing that has to be flexible with what's going on there. It's being reported by others that the economic rebound people expected in China post-lockdown is not forthcoming. The consumers over there are cautious right now; it helps us to negotiate with our partners about taking back some of the stores, which is our focus.

Great. I appreciate the follow-up, and then one more if I could just follow up. In terms of gross margin, obviously, there are a lot of moving parts in the P&L this quarter with the move to discontinued ops, but I'm just curious, now that we have a lot of high-margin licensing revenue along with Honey Birdette as a big contributor, is 2Q's gross margin somewhat indicative of the base business going forward, or is there anything that would mislead us about Q2?

Yeah, this is Mark. It did tick up a little from the high-margin businesses, that's true. I would note, however, that the licensing business may see a slight decrease because we did have a pickup from a commission reversal that we had in there. So licensing will come down a little bit. But to your point, you will see Honey Birdette start to lift, and if you net the two together, they should be roughly the same.

Hey guys, thanks for taking my question. Just then, I think earlier you kind of gave us the revenue dependence of the top 10 performers on Center. Just kind of wondering, could you share any color on how many of those performers are exclusive to the platform and how you're kind of thinking about that dependence going forward?

Sure. Thanks, Greg. We don't have exclusivity with any of our creators. Our creators are free to do whatever they want, which is consistent with the creator economy. They want to be able to monetize where they choose. Once a creator has an audience on the platform, that audience tends to stay with them here, and I don't see most of our creators on other platforms. We've actually been successful during the quarter with creators that wanted to leave other platforms and start to move over to us; those revenues continue to build. Looking at the concentration risk, what's encouraging to me is our GMV, if you annualize our weekly basis, is now in excess of $35 million. When I look at what our top 10 creators contribute versus where they were a few months ago as a percentage, that number continues to come down because we've added many other creators earning as well. This has resulted in a much more consistent daily growth on the platform, which is beneficial to us. This is what we've focused on, and we're very encouraged by the results. It also allows us to reprioritize the internal human capital, starting to think more about platform marketing. We haven't spent a dollar for that yet, so all of our customers come via the creators; it allows us to focus on the Playboy lifestyle and marketing in intelligent ways instead of a labor-intensive individual creator recruitment process.

There are no further questions in the queue. I'd like to hand the call back to Ben Kohn for closing remarks.

Thank you, operator. I appreciate everyone joining and we look forward to talking to you on our next quarterly earnings call. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.